Understanding Your K-1 From a Senior Housing Investment
By Haven Senior Living Partners · · 2 min read
If you invest in a senior housing partnership, you will receive a Schedule K-1 instead of a 1099. Here is what it shows and when to expect it.
Key takeaways
- A K-1 reports your share of the partnership's income, deductions and credits for the year.
- Depreciation often makes taxable income lower than the cash you received, and sometimes negative.
- K-1s usually arrive later than other tax forms, so many investors file an extension.
- Investing in properties located in several states can mean filing in those states too.
What a K-1 is
Most private real estate investments are organized as partnerships or LLCs taxed as partnerships. The partnership itself generally does not pay income tax. Instead, it passes income and deductions through to each investor on a Schedule K-1 (Form 1065).
What you will see on it
Your share of the property's operating results after expenses and depreciation.
Reported in some structures, depending on how the partnership is organized.
Such as interest earned on reserves.
Typically appears in the year a property is sold.
Tracks what you contributed, your share of income or loss, and distributions you received.
Why taxable income can be lower than cash received
Real estate depreciation is a non-cash deduction. A community can produce cash distributions while showing a small taxable income, or even a paper loss, especially when a sponsor uses a cost segregation study and bonus depreciation. That deferral can be recaptured later when the property is sold. Read How Bonus Depreciation Turns a $20M Senior Housing Project Into a Tax-Smart Investment.
When K-1s arrive
Partnerships must first close their books and complete their own return, so K-1s often arrive in March or later. Many investors in private real estate routinely file a personal extension.
Passive activity rules
For most limited partners, the income is passive. Passive losses can usually offset only passive income, with unused losses carried forward. Real estate professionals may be treated differently. Your tax advisor can explain how this applies to you.
Using a retirement account
If you invest through a self-directed IRA, the K-1 goes to the IRA, and debt-financed income may create unrelated business taxable income (UBTI). See Investing in a Senior Housing Syndication With a Roth IRA.
Questions about Haven's investor reporting? Schedule a call.
This article is for education only and is not an offer to sell or a solicitation to buy any security. Target returns are not guaranteed. Consult your own tax, legal and financial advisors.
